What is the future for loyalty programs?

Over the past few months not a day goes by when you don’t see a news story about yet another retailer struggling to come to terms with the changes in the consumer and business marketplace. For some the result has been their ultimate demise – Toys R Us, for example. For others it has meant a CVA or, as Marks & Spencer announced this week, closing a large number of stores.

All this doom and gloom set me thinking. Why is it that retailers are struggling so much, and what has happened to the oft vaunted retail loyalty program? Many industry experts point to issues such as the changes in consumer behaviour, the meteoric rise of the e-tailer, and of course the dreaded GDPR and consumer privacy issues. Well GDPR has now officially arrived, and as far as I can tell, the world has not ended.

What kind of privacy do we want?

I recently reread a blog by Greg Ferenstein – “The Birth and Death of Privacy: 3,000 Years of History Told Through 46 Images” and was fascinated by the insight that privacy has only been an issue for modern men and women for around 150 years of our existence. Greg also goes on to point out that in some communities, there are behaviours emerging that actually act contrary to the belief that everyone wants to be completely private about all aspects of their lives. For me personally, the hypothesis posed at the end of the article really made me sit up and think: If we are not prepared to share our health data openly, we risk dying earlier . Well that certainly focuses the mind. So, if perhaps we can borrow a concept from the health industry and consider a data privacy model for our loyalty program of “informed consent,” then perhaps GDPR is not the big scary monster under the bed after all.

So, if perhaps we can borrow a concept from the health industry and consider a data privacy model for our loyalty program of “informed consent,” then perhaps GDPR is not the big scary monster under the bed after all.

How has consumer behaviour changed?

But what about the changes in consumer behaviour? This is a regular topic of conversation amongst friends and colleagues, and in many cases I think it fair to say that none of the people I talk to would describe themselves as loyal to a single retailer. So what does that mean to high street retailers that have invested in hugely expensive card- and points-based loyalty programs? Do they simply not work? My opinion is that they did work, but as the nature of consumer demand has changed, the demands we as consumers have of the retailer also changed. That is not to say that points collection schemes don’t work at all, for many consumers are still happy with this form of retail loyalty program. But I would argue that pool is shrinking.

The issue of e-tailing

Then comes the issue of e-tailing, either with the new giants of online retailing (such as Amazon) challenging, well, everyone – from your grocery retailer to car spare parts and even fashion – through to niche e-tailers selling to a single consumer market. Many established high street names have invested heavily in this area, and some have been very successful in winning and retaining a following to their online empire. One well-known grocery retailer has successfully created a digital presence but is unable to effectively link this to its brick-and-mortar estate, where they know next to nothing about visiting consumers. In many cases the activities of the new digital world are still run separately from the traditional world, resulting in an incomplete picture of the consumer from either the digital or the traditional points of view. The result: an underwhelmed consumer when a communication does occur, as only a partial picture of the consumer is used.

Does technology have a role in future loyalty programs?

Next for consideration comes technology, and the answer, of course, is artificial intelligence or machine learning, delivered in the cloud and connected to millions of IoT devices feeding real-time information 24 hours a day, 365 days a year. George Orwell may have had a point when he penned “Big Brother is watching you.” Of course, it doesn’t really need to be like that at all. Each of the concepts – be it AI, machine learning, computing at scale in the cloud, or the diversification and extension of data to incorporate massive amounts of new information – can have a place in future loyalty programs. But what matters is the ability to understand and respond to basic consumer needs, which should still be the primary focus.

It’s very easy to get lost in the idea that as a consumer my phone is telling you that I am approaching your store, or that I am in the frozen food aisle next to the frozen peas, so therefore there must be an opportunity to communicate with me! The reality is much more mundane. I am approaching the store because I need to eat to survive; in order to eat I need to buy groceries. I am in the frozen food aisle by the peas because it said peas on my shopping list. As single events, these seem like opportunities to communicate with a customer. But recalling our own personal experiences, I am sure many of us can recite stories about how the over-enthusiastic sales person has leapt out to help the minute you have stopped next to a display of consumer electric goods or a rack of new season fashions.

For many, myself included, it’s this kind of experience that drives us to shop online, garner opinion from other purchasers through the anonymity of the “what other buyers think” section and generally avoid the uncomfortable experience in store. I stopped by the toasters because I thought “that’s a nice display of toasters,” or more probably “why am I in electronic goods, I was looking for frozen peas?” I really don’t need to know about the 27 different functions for turning bread into charcoal that are on offer. It’s all about context and demonstrating we really understand the consumer, but doing it carefully and tactfully.

Are these the features of a future loyalty program?

In gathering these separate streams of thought I again came back to loyalty and retail – what does it mean? Imagine the world in three to five years’ time and try to define what a loyalty program would look like then. What would its features be?

Firstly, let’s think about data and privacy. Is it possible to have a loyalty recognition system that doesn’t require me to submit my PII data and life history? I would argue it is both possible and, frankly, probably the only way in which we can safely operate in the world of new legislation. I go back to what I said earlier: I think it’s possible to borrow ideas from models like the “informed consent” model operated by many health service providers. If I want to share the fact that I am lactose intolerant or seeking a low fat and salt diet with my retailer, then that is my choice to do so. What retailers absolutely must do is use that information to communicate with me in relevant and contextual ways.

Likewise, we should not limit our thinking to data we generate or store alone. For many years I have supported the open data approach advocated by the Open Data Institute, one in which we look to combine open, shared and closed data in ways to provide insight into consumer needs and demands. And whilst we are talking data, I am not suggesting that the loyalty program of the future should try to store all this data in a single giant data warehouse built on invisible server farms held under the polar icecaps, which all sounds a little bit like a James Bond film plot. I am suggesting that a future loyalty program must find ways of combining data from different sources quickly and efficiently to gain insight in context, in a timely manner. Then acting on this insight and storing only the details required to maintain compliance and meet regulation.

I am suggesting that a future loyalty program must find ways of combining data from different sources quickly and efficiently to gain insight in context, in a timely manner. Then acting on this insight and storing only the details required to maintain compliance and meet regulation.

What about the rewards, though? Should we stick with points? In my opinion, no. As consumers we are all different, driven by different motivations and with constantly evolving needs, so a loyalty program of the future needs to reflect this as well. The challenge for retailers is that this means the creation and curation of a content pool of offers and rewards that also remains current and dynamic to keep up with consumer demand – a not insignificant challenge in its own right. It’s also worth considering that a modern loyalty program is a means for communication, and not every communication has to be an offer or a reward.

Then there is the loyalty device – card, mobile app or other mechanism? I am leaning towards the biometric solution here. Organisations like Sthaler are at the forefront of these technologies, offering a service that makes it simple for consumers to use the loyalty device. After all, who leaves home and forgets to take their finger with them? This also offers advantages to the retailer, such as guaranteed age verification and privacy, payment and loyalty linked to a single unique biometric device – the consumers deep vein patterns within their finger – and no PII data to be held by the retailer.

Finally, let’s consider the technology required to run this loyalty program. At its very heart is the knowledge of the consumer, but for each anonymous identity we need to build a dynamic and variable entity to hold all we know, have derived or been told about our consumer. For the sake of this blog, I will refer to this as the consumer vector. Unlike today’s loyalty program, this consumer vector will need to exist not as a static record in a data table, but rather as an entity in a virtual ecosystem, where we as consumers can express our needs and wants. The retailer can build on this shared data using a variety of techniques and approaches, including the much-vaunted AI and machine learning algorithms that attract so much media attention today. I would go further and say that this ecosystem will need to be supported by an “algorithmic decisioning” system in order to scale to meet the diversity of needs inherent in a mixed digital and traditional retail environment – one that is with us today and will expand in the future. Loyalty and reward of consumers will demand the connection of these two ecosystems into one hybrid environment where we recognise a consumer in different personas.

I would go further and say that this ecosystem will need to be supported by an “algorithmic decisioning” system in order to scale to meet the diversity of needs inherent in a mixed digital and traditional retail environment.

My own digital buying persona for a grocery retailer would be tinned and dry goods, washing and cleaning products, and regular consumables such as milk and eggs. My traditional in-store behaviour would encompass salad and vegetables and other fresh produce, such as meat and fish, where I want to look at the product and pick the cut of meat or the sack of potatoes. If my grocery retailer recognised that my personal preferences included not having so much plastic food packaging and a preference to buy locally sourced, by which I mean within 20 miles of the store, then promote the product to me on this basis. I would also pay the price premium for someone putting the potatoes into a paper bag, as I am not a price-sensitive shopper.

Every consumer will be driven by different needs, and our new loyalty mechanism must recognise and respond to these needs. It won’t just be about money-off vouchers or multibuy options; loyalty in the future will be more about giving me, the consumer, the experience I want and recognising that I behave in different ways through different channels. That is what will keep me loyal.

Do I think retailers need a means of identifying and supporting loyal customers? Yes, I do. Do I think that the current mechanisms for retail loyalty instil consumer loyalty? No, I don’t.

About Author

Mike Turner loves innovation and it has been a key part of his career to date, from being part of the creation of the first personalised magazine in the UK for customers of the Rover Car Company, to connecting organisations in collaborative networks so they can leverage the power of capabilities such as Artificial Intelligence, IoT and cloud solutions. Having gained more than twenty-five years of experience he is now using that knowledge across a spectrum of activities, from supporting a masters program in digital marketing at one of London’s top universities, through supporting startups in the agile delivery of their chosen business solution via a SAS Fintech program, while continuing to advise established organisations across all industry sectors in all aspects of customer intelligence.